RESTAURANT INDUSTRYIt's now a table for oneAs Fertitta takes Landry's private after a long struggle, growth still part of strategy

By David Kaplan |
October 6, 2010

Willie G's is one of the brands in the Landry's portfolio. As Tilman Fertitta becomes the sole owner of Landry's as soon as today, he says, "We're always looking at opportunities" to add to the Houston-based company.

When Tilman Fertitta took Landry's Restaurants public in 1993, the company had nine restaurants. Today it's an empire, with more than 200 restaurants, amusement venues, hotels and casinos.

And now it's all his.

After trying more than two years to go private again, Fertitta finally succeeded. The deal, which is worth about $1.4 billion including debt, is expected to close today. On Monday, Landry's shareholders approved his offer.

Although he no longer has to answer to anyone, he says the company strategy will be the same.

"Tomorrow, nothing's going to change," he said Tuesday in his Galleria-area headquarters. "We are absolutely not selling anything, and we're always looking at opportunities."

For example, Landry's is interested in buying the Atlantic City Hilton Casino. Fertitta is also looking into buying more restaurant chains, he said.

Within the next few weeks, he said, Landry's will make a major announcement on plans for Galveston's Flagship Hotel, which was ravaged by Hurricane Ike.

Emotionally, things are different, he acknowledged: "Does it feel good to own a company 100 percent? Yeah. But I've totally enjoyed being a CEO of a public company on the New York Stock Exchange for the past 17 years and proud of what we accomplished."

Is he worried about the company's more than $700 million debt?

"Nope," he said. He owned about 55 percent of the company before taking it private, he noted, so he was already used to big risk.

In January 2008, Fertitta offered $23.50 per share in his takeover bid and later lowered his bid because of the financial crisis, credit crunch and property damage from Hurricane Ike. After his offer went as low as $13.50, he later raised it to $24 per share this May.

In June, after Fertitta raised his bid to $24.50 per share, Pershing Square Capital Management, which owns almost 10 percent of the company's shares, agreed to his offer.

"I probably paid a few extra dollars per share, but I couldn't get the deal done if I didn't," he said.

Steven Davidoff, a professor of law at the University of Connecticut, who followed the buyout proceedings, noted that when investors filed a lawsuit alleging that the Landry's board and Fertitta breached their fiduciary duties, a Delaware court denied a request by Landry's to dismiss the case. The case was later settled.

"Ultimately, the market and the courts worked and shareholders were able to reap a price well above what Mr. Fertitta initially offered," Davidoff said.

Now is a challenging time to be in business, Fertitta acknowledged, and he sees a slow recovery. It will probably be 2013 before the economy rolls again, he said.

From a restaurant perspective, the Texas economy is doing relatively well, he said.

The casino industry has been in a severe decline since the recession began.

Landry's has invested heavily in the Golden Nugget Hotel & Casino in Las Vegas and Laughlin, Nev., spending more than $300 million since 2005 to renovate and expand the Las Vegas complex, according to the company.

"The Nugget has very high occupancy rates," Fertitta said. "We've rented 100,000 more rooms this year than last.

"But it's tough, don't get me wrong," he said referring to the casino industry.

"It's a very bad climate for the gaming industry, but I'm impressed by the way they've rebranded the Golden Nugget," said Kep Sweeney, managing director of Acceleron Group, a Las Vegas-based investment banking firm that tracks the restaurant and gaming industries. "They've done a nice job creating an attractive atmosphere in a traditionally challenging part of Las Vegas."

Dave Jacquin, founder and managing director of North Point Advisors, a San Francisco-based mergers and acquisition firm, believes Landry's is in a position to grow.

"He's leveraged, but I wouldn't call it over-leveraged, and the worst of the economy is behind us," said Jacquin, who's been involved in a transaction with Fertitta. "He's built it himself, and I think it's a great company."

"He's a collector of brands. He paid about $45 million for the Chart House chain, and it's probably worth $200 million today." The value of his other brands, such as Rainforest Cafe, have also gone up significantly, he said.